Weekly Tax News – 22 March 2021

ECOFIN remains positive about an OECD agreement on international tax reform

On 16 March, in the course of the ECOFIN Council, the European Finance Ministers expressed a certain optimism about the development of the negotiations on the international tax reform at OECD level. The new US administration have abandoned the demand for a safe harbor and the consequence is that there are real chances for reaching a deal by mid-2021. The Ministers have clearly asked the Commission to be cautious with the work undertaken on an EU tax on the digital economy. Many Member States are indeed worried that the international solution (which should include both Pillar 1 and Pillar 2 proposed at OECD level) would be the preferred option and that the Commission should not risk to hinder the negotiations. However, the Commission is bound by the conclusions of the European Council of July 2020 which committed the Commission to present a proposal for a new own resource for the EU budget based on digital taxation by June. During his speech, Tax Commissioner Paolo Gentiloni has apparently confirmed that the Commission would not present a proposal until there is more clarity on the chance to reach an agreement at OECD level. EU heads of State and Government are expected to discuss the topic during the European Council on 25-26 March.


FISC Committee advances on its report on digital taxation

On 17 March, the FISC Subcommittee of the European Parliament held a meeting to discuss the own-initiative report on “Digital Taxation: OECD negotiations, tax residency of digital companies and a possible European digital tax”. The two co-rapporteurs Andreas Schwab (EPP, Germany) and Martin Hlaváček (Renew Europe, Czech Republic) highlighted that some of the issues of the report are still to be agreed, such as the threshold above which companies would fall under the scope of a digital levy and the wording of the minimum effective tax rate. The ECON Committee should vote on the report on 23 March, just a few days before the EU Heads of State and Government meeting on 25-26 March.


The Parliament calls for an ambitious DAC reform

On 18 March, during an ECON meeting, the rapporteur Sven Giegold (Greens/EFA, Germany) has discussed its draft implementation report assessing the application of the Directive on Administrative Cooperation in the field of taxation (DAC) and its subsequent amendments. MEP Giegold has highlighted that EU countries do not exchange enough data and that their respective tax authorities still not use enough such information. He pointed out that one of the main issues is the limited effectiveness of the exchange of beneficial ownership information. During the discussion, MEP Lidia Pereira (EPP, Portugal) called for DAC 8 to include a revision of the rules in order to avoid successive changes and also stressed that the Council should make further steps to cooperate with the Parliament on this matter instead of refusing the Parliament access to documents which relate to the implementation of the Directive.


Court of Justice of the EU validate Polish and Hungarian turnover taxes

On 16 March, the Court of Justice of the European Union (CJEU) has confirmed that the Polish and the Hungarian taxes on turnover do not infringe EU law on State aid. The judgement is related to appeals (C 562/19 P Commission v Poland and C 596/19 P Commission v Hungary) and it upheld the General Court’s judgments that the Polish tax on the retail sector and the Hungarian tax on advertisement revenue are set in accordance with EU standards. Therefore, these judgment annul the Commission’s decisions (against Poland and Hungary) according to which the two taxes were granting an unlawful advantage to smaller undertakings which were taxed at too low level. In its judgement, the Court of Justice reaffirms that “given the current state of harmonisation of EU tax law, the Member States are free to establish the system of taxation which they deem most appropriate, so that the application of progressive taxation falls within the discretion of each Member State”.


European Commission refers the UK to the Court of Justice for state aid in Gibraltar

On 19 March, the European Commission has decided to refer the UK to the Court of Justice of the European Union (CJEU) for a case related to facts that took place before the withdraw of the UK from the EU. In particular, according to the Commission, the UK failed to fully recover illegal State aid of up to around €100 million, granted as a tax exemption for passive interest and royalties in Gibraltar, as required by a Commission decision. The 2019 Decision declared that some Gibraltar's corporate tax exemption regime for passive interest and royalties dating back to 2011 and 2013 were unlawful and incompatible with State aid rules.